NEWS FLASH: FMC initiates detention, demurrage investigation

Commissioners voted unanimously to look deeper into a petition from shippers and truckers alleging carriers engage in unfair assessment of free time penalties.

The Federal Maritime Commission (FMC) on Monday voted to launch an investigation into the liner carrier industry’s practice of assessing detention, demurrage, and per diem charges.
The investigation, headed by Commissioner Rebecca Dye, relates to a petition filed in December 2016 by a coalition of shippers, associations and trucking organizations. The petition asked the FMC to adopt a policy to restrict ocean carriers’ ability to assess what the coalition deemed unreasonable detention, demurrage, and per diem penalties, particularly when the cause of the infractions was beyond the control of cargo owners’ or their representatives.
The FMC held two days of hearings in mid-January to hear from a range of stakeholders on the petition, including importers, shipper associations, drayage providers, carriers, and terminal operators.
The latter two groups contend that the petition seeks to push all of the inherent risk in supply chains onto them by not letting them penalize shippers and shippers’ representatives when containers are stored in marine terminals or kept by shippers for too long. Additionally, carriers have emphasized that the intensely competitive nature of liner shipping means they cannot excessively penalize shippers for detention and demurrage and maintain good commercial relationships with those customers.
Advocates for the liner carrier and terminal operator industry also urged the FMC to carefully weigh the consequences of acting on the petition, as it could be perceived legally as too much of an overreach into what they consider purely commercial activity.
The investigation ordered by the commission Monday presumes no outcome to the petition, though commissioners said the points brought on in the hearings in January needed to be explored more thoroughly.
“The coalition raised substantive issues in both their petition and their testimony at our January hearing investigating carrier and terminal detention and demurrage practices,” Acting FMC Chairman Michael A. Khouri said in a statement. “Various alleged practices were described that—without countervailing or explanatory testimony and evidence—would be troubling from my perspective. However, without any filed complaints by cargo stakeholders, where the crucible of adversary proceedings can bring light and transparency to such practices, I supported this investigatory fact finding so as to more fully develop a tested factual record.”
Dye will have broad authority to conduct the investigation, called Fact Finding 28, including the power to issue subpoenas, hold public and non-public sessions, and require reports. Under the order, she is charged with making recommendations for commission action, including investigations of prohibited acts, enforcement priorities, policies, rulemaking proceedings, or other actions warranted by the record developed in the proceeding.
In particular, the FMC said Dye will evaluate five key issues:
• Whether the alignment of commercial, contractual, and cargo interests enhances or aggravates the ability of cargo to move efficiently through U.S. ports;
• When has the carrier or MTO tendered cargo to the shipper and consignee;
• What are the billing practices for invoicing demurrage or detention;
• What are the practices with respect to delays caused by various outside or intervening events;
• And what are the practices for resolution of demurrage and detention disputes between carriers and shippers.
The order stipulates that Dye will issue an interim report of findings and recommendations no later than Sept. 2, 2018, with a final report no later than Dec. 2, 2018.
Shippers have long contended that carriers uses detention, demurrage, and per diem penalties not only as a punitive measure to combat excess free time, but also a revenue driver. The problem most recently came to a head during a period of intense congestion at U.S. West Coast ports in late 2014 and early 2015, and also during the aftermath of Hanjin Shipping’s bankruptcy in August 2016.
Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation (NRF) said the NRF applauds the FMC for launching its fact-finding investigation on detention and demurrage.
“NRF was one of the members of the Coalition of Fair Port Practices, which asked the FMC to look into the detention and demurrage issue,” Gold said. “We are thankful that the commissioners have recognized the ongoing issues that cargo owners and transportation providers have been facing as identified in the Coalition's petition and hearings in January. We are hopeful that the end result will be a policy that will help clarify the issuance of detention and demurrage that will be fair for all stakeholders.”
Demurrage pertains to the time an import container sits in a container terminal, with carriers generally responsible for collecting penalties on behalf of container terminals. Detention relates to shippers keeping hold of containers for too long outside of a container terminal. American Shipper wrote about the FMC hearings in its March issue cover story.